Choking Broadband Competition

With the audacity of highwaymen, the Baby Bells are fleecing broadband subscribers through state laws outlawing fair competition by municipalities. The railroading of state legislatures is reminiscent of robber barons during the gilded age. It should provoke President George W. Bush to demand federal legislation nullifying the anti-competitive state proscriptions. Bush has celebrated universal broadband access as his telecommunications policy North Star. To sit idly by while the Baby Bells sabotage that objective would mark one of President Bush’s least lofty hours.

Pennsylvania’s recent law generally prohibiting municipalities from broadband competition is emblematic of the mischief afoot. At present, cable companies and the Baby Bells dominate the high-speed access market. In a large percentage of cases, either cable or digital subscriber line (DSL) service offered by the Bells are the only choices. The incumbents exercise market power, which inflates prices and dulls innovation and service. The Bells fear competition will erode excess profits and compel Mercury-footed rather than lead-footed responses to customer complaints and desires.

Broadband rates in the United States are among the world’s highest—$35-$40 per month— for relatively slow speeds of 1 to 2 megabits per second. Japan, in contrast, features $15 per-month rates for speeds approximating 30 megabits per second.

The anti-competitive Pennsylvania statute was occasioned by Philadelphia’s plan to offer wireless Internet access throughout the city. A smaller municipality, Kutztown, had deployed a high-speed fiber network that similarly threatened Verizon’s broadband subscriber base. The telephone colossus confronted a choice between beating the new competition with superior prices and service, and defeating the municipalities through the law. Verizon chose the latter.

The anti-consumer statute provoked outrage sufficient to require a grandfather exception for Philadelphia’s plan. But most of Pennsylvania’s residents and businesses are now vulnerable to broadband predation by Verizon.

Pennsylvania joined 13 other states which shield the Baby Bells from competition by municipalities. The Bells unpersuasively argue that cities would enjoy an unfair advantage because of their exemption from taxes or access to low-cost capital.

President Bush’s complacency with a remonopolization of the telecommunications industry is inexplicable and inexcusable. He has praised free enterprise, but has neglected to subject the Baby Bells to antitrust laws—the Magna Charta of economic liberty. The President has celebrated small businesses’ 20-cylinder engines of economic growth, but has acquiesced in the FCC’s laceration of small local-exchange carriers and monumental rate hikes for small-business subscribers. The president is exhibiting the same complacency over the Baby Bells’ legal assaults on broadband competition.

What is at stake is not intellectual tidiness, but a choice between a forward-looking, consumer-friendly and competitive telecommunications industry, and a backward-looking, sluggish and monopolistic alternative. Shouldn’t President Bush choose the former, and begin by initiating federal legislation to protect the right of municipalities to compete for broadband subscribers?

Bruce Fein was the FCC general counsel under President Ronald Reagan, and is a contributing editor to Tech Central Station, an attorney at Bruce Fein & Associates, and an international consultant at The Lichfield Group.